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How much does investment drive economic growth in China?

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  • Qin, Duo
  • Cagas, Marie Anne
  • Quising, Pilipinas
  • He, Xin-Hua

Abstract

Investment-driven growth has long been regarded as a key development strategy in China. This paper investigates empirically the validity of this view. Post-1990 data analyses and macroeconometric model simulations show that market demand has become a regular force in driving investment since reforms, that non-demand-driven investment growth contributes to increasing capital-output ratio far more than output growth, that government investment exerts a pivotal role in amplifying investment cycles, albeit effective in promoting employment, and that delayed and rising consumption from current investment surge can help sustain the impact of growth even with constant-returns-to-scale in the long-run GDP.
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Suggested Citation

  • Qin, Duo & Cagas, Marie Anne & Quising, Pilipinas & He, Xin-Hua, 2006. "How much does investment drive economic growth in China?," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 751-774, October.
    • Handle: RePEc:eee:jpolmo:v:28:y:2006:i:7:p:751-774
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • R34 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Input Demand Analysis
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • P41 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform

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